The Role of the Financial Sector in Zimbabwe, Central Banking and its Social and Economic Impacts’

Written by admin on August 26th, 2011

growth by increasing the rate of capital accumulation and by improving the efficiency with which the economies use that capital. Schumpeter (1912) contends that well- functioning banks spur on technological innovation by identifying and funding those entrepreneurs with the best chances of successfully implementing innovative products and production process. Foreign banks should be allowed to compete with state owned and private sector financial institutions in varying degrees.


Financial reforms should mainly be directed towards relaxing the regulatory measures and reducing state’s grip on the system.  It should be noted that developed markets are easily able to adjust to new reforms whilst it is not so easy in emerging market countries. There is a possibility that some temporary economic destabilizations may occur at the beginning of certain reforms. Study on seven countries conducted by the IMF to examine linkages between financial sector reforms and financial crisis has identified a number of destabilization factors (Sundararajan and Balino, 1991). Hence developing nations should not quickly reverse a policy when destabilization occurs because policy makers lose credibility yet their policy may be sustainable in future. Higher level of social rigidities is one of the dominant factors significantly affecting the financial markets and this slows down the benefit of financial reforms.


Poorly designed or poorly executed communications clearly can do more harm than good; and it is not obvious that a central bank is always better off by saying more. In practice, central banks do limit their communications. In most cases, internal deliberations are kept secret. Only a few central banks project the future path of their policy rate. Communication is not pre-commitment, that is communication should not be confused to commitment, a public announcement requirement could impede timely and appropriate adjustments to policy.


Central bank communication is also a two-way street: It must have both a transmitter and a receiver, and either could be the source of uncertainty or confusion. Moreover, on the receiving end, the same message might be interpreted differently by different listeners who may have different expectations or believe in different models.


In conclusion, policies to improve the financial sector should be socially acceptable and socially related. There should be a designed way that links the Central Bank policies and the public view, so that any strong disparity should be justified. For every policy, target population should be seen benefiting from the policy, because it has been argued that, different economic agents are benefiting more than the defined target.


As it has to been noticed by various individuals’ testimonies, the period in which the financial sector is in disorder gives people a very hard time because of its direct impact to the economy. Hence it is advised that the authorities should design policies that are in line with the financial sector development and hence it is socially acceptable. Economic development is directly connected to financial development, although some proposed a two way causal effect of the two. Zimbabwe’s financial /banking sector contributes to the level of economic growth, hence should receive adequate support.

Bhattarai, K.(2003) Role of financial markets in an economy, department of economics, University of Hull, UK

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Gordon Newlove Asamoah (2008), “The Impact Of The Financial Sector  Reforms On Savings, Investments  And Growth Of Gross Domestic Product (GDP) In Ghana.” International Business & Economics Research Journal – October, Volume 7, Number 10

Panetta, F, T Faeh, G Grande, C Ho, M King, A Levy, F Signoretti, M Taboga and A Zaghini (2009): “An assessment of financial sector rescue programmes”, BIS Papers, no 48, pp 59–64.

Petra Gerlach (2010), “The dependence of the financial system on central bank and government support.”  BIS Quarterly Review, March.

Piyadasa Edirisuriya (2007), “Effects of financial sector reforms in Sri Lanka: Evidence from the banking sector,” Asia Pacific Journal of Finance and Banking Research Vol. 1. No. 1.

Reserve Bank of Zimbabwe Anti-Money Laundering Capacity Building Workshop, Reserve Bank Training Centre, Harare, Zimbabwe, 27 September – 6 October 2000

Reserve Bank of Zimbabwe, Monetary Policy Statement, January 2009

Zimbabwe: Survey of Financial Institutions.

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